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Jesse Livermore’s How to Trade in Stocks

Jesse Livermore wrote one book: How to Trade in Stocks: The Livermore Formula for Combining Time, Element and Price. It was published in 1940. The book is very rare and not easily found.

Some excerpts from the original version are below:

Trust Yourself

When you are handling surplus income to do not delegate the task to anyone. Whether you are dealing in millions or in thousands the same principal lesson applies. It is your money. It will remain with you just so long as you guard it. Faulty speculation is one of the most certain ways of losing it. Blunders by incompetent speculators cover a wide scale.

Losers Average Losers

I have warned against averaging losses. That is a most common practice. Great numbers of people will buy a stock, let us say at 50, and two or three days later if they can buy it at 47 they are seized with the urge to average down by buying another hundred shares, making a price of 48.5 on all. Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the double worry when the price hits 44? At that point there would be a $600 loss on the first hundred shares and a $300 loss on the second shares. If one is to apply such an unsound principle, he should keep on averaging by buying two hundred shares at 44, then four hundred at 41, eight hundred at 38, sixteen hundred at 35, thirty-two hundred at 32, sixty-four hundred at 29 and so on. How many speculators could stand such pressure? So, at the risk of repetition and preaching, let me urge you to avoid averaging down.

Margin

I know but one sure tip from a broker. It is your margin call. When it reaches you, close your account. You are on the wrong side of the market. Why send good money after bad? Keep that good money for another day. Risk it on something more attractive than an obviously losing deal.

Price Movement

We know that prices move up and down. They always have and they always will. My theory is that behind these major movements is an irresistible force. That is all one needs to know. It is not well to be too curious about all the reasons behind price movements. You risk the danger of clouding your mind with non-essentials. Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide. Do not argue with the condition, and most of all, do not try to combat it.

Jesse Livermore Books

• How to Trade in Stocks (PDF)
• Reminiscences of a Stock Operator (PDF)

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